There are good reasons to think the Federal Reserve would be preparing to cut interest rates this week due to recent improvements on inflation—if not for the risk that tariffs pose to prices.

Instead, Fed officials are on track to extend their wait-and-see posture on Wednesday. The central bank is in a holding pattern as it waits to see what worsens first: inflation or the labor market.

Investor hopes for a quick resolution to the Israel-Iran conflict dimmed as the two countries continued to trade missile strikes overnight, and President Trump left the G-7 summit without new trade deals.

Elsewhere, the Bank of Japan on Tuesday left its policy settings unchanged amid ongoing trade uncertainty and announced that it would slow the pace of its bond-buying reduction after April 2026.

Federal Reserve officials at their meeting will be assessing how the economy handles the initial months of historically large tariff hikes. The last three months’ inflation readings have been mild.

Still, officials are worried over how tariff announcements since March could disrupt what economists refer to as “inflation expectations.”

Inflation expectations—or what consumers and businesses think inflation will be in the future—can’t be seen or touched. Researchers conduct surveys or infer them from investors’ bets on future inflation. Expectations are both very tricky to measure and very important to the Fed.

The Fed doesn’t want to make a mistake. In juggling any trade-offs, it has to wrestle with two important considerations: whether a rise in inflation expectations or a sputtering labor market is more likely, and which is more costly.

The Bank of Japan held its policy rate steady at 0.5%, where it has remained since its last hike in January. BOJ Gov. Kazuo Ueda has said the bank will continue to consider further interest rate increases, depending on economic conditions.

As part of its efforts to unwind years of ultra-easy monetary policy, the BOJ reaffirmed its plan to reduce purchases of Japanese government bonds by 400 billion yen each quarter through March 2026. It also announced a 200 billion yen reduction per quarter beginning in April 2026. Under the new schedule, the bank’s monthly bond purchases will decline to around 2 trillion yen in the first quarter of 2027.

• Trump’s Immigration Raids in L.A. Reshaped Life for a Longtime Workforce

Braden Lindstrom had only dabbled in investing when he was encouraged by someone impersonating a financial adviser to buy shares in a small Chinese company listed on the Nasdaq Stock Market. A few clicks later, he was on his way to being scammed out of $80,000.

Lindstrom invested in Jayud Global Logistics, a small Chinese shipping company whose price rose for months, then crashed 96%, just after Americans like him were told to buy it.

Wall Street veterans say the pattern has been repeated dozens of times in recent years, and feeds on tiny Chinese stocks that are vulnerable to manipulation and easily bought by U.S. investors.

8:30 a.m.: Import & Export Price Indexes
8:30 a.m.: Advance Monthly Sales for Retail & Food Services
9 a.m.: Johnson Redbook Retail Sales Index
9:15 a.m.: Industrial Production and Capacity Utilization
10 a.m.: Manufacturing & Trade: Inventories & Sales
10 a.m.: NAHB Housing Market Index
7 p.m.: U.S. Federal Open Market Committee meeting
7 p.m.:  French President Emmanuel Macron and Saudi Crown Prince Mohammed bin Salman Al Saud co-host conference on Palestine

7 a.m.: MBA Weekly Mortgage Applications Survey
8:30 a.m.: New Residential Construction, Housing Starts and Building Permits
8:30 a.m.: Unemployment Insurance Weekly Claims Report, Initial Claims
10 a.m.: Online Help Wanted Index
2 p.m.: Federal Reserve economic projections
2 p.m.: U.S. interest rate decision
4 p.m: Treasury International Capital Data

Bank of America analysts worry that foreign demand for U.S. government debt could be declining. They write in a report that custodial holdings (a proxy for foreign official demand) “declined sharply last week," while holdings of dollar assets are down by more than $60 billion since the start of April. "Foreign demand at auctions also continues to moderate," the analysts write. Treasury auctions last week eased fears that demand could be crumbling. BofA says foreign demand held up in 1Q, but it could be changing. — Paulo Trevisani

• President Trump left the Group of Seven summit in Canada a day early without new trade deals, after signing onto a joint statement that calls for peace and stability in the Middle East.
• Trump earned around $57 million from his stake in a family-backed cryptocurrency firm last year, according to a new financial disclosure form, showing the early returns on a burgeoning digital-asset empire.
• Commerce Department officials weighed new export limits on critical technology going to China ahead of recent trade talks in London, adding to the Trump administration’s arsenal if tensions between Washington and Beijing escalate again.
• Israel hasn’t attacked Iran’s energy export hubs so far. If it does, China could find itself cut off from a flow of cheap oil. Chinese refineries have become hooked on cheap imports of sanctioned Iranian crude
• The Organization of the Petroleum Exporting Countries trimmed next year’s forecast for supply growth from the U.S. and other rivals while keeping its oil demand expectations unchanged as it continues to ramp up production.
• The International Energy Agency said the global oil market is expected to remain well supplied through the end of the decade, though rising geopolitical risks in the Middle East and unresolved trade tensions risk casting a shadow over the outlook.
• German confidence in the economy jumped again this month, helped by improving consumer demand and the expected boost from the new government’s spending plans.
• Taiwan's central bank is expected to leave its benchmark policy rate unchanged on Thursday, according to a poll of eight economists by The Wall Street Journal. (Dow Jones Newswires)

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by news associate Roshan Fernandez in New York. Send your tips, suggestions and feedback to roshan.fernandez@wsj.com.